June 10, 2022
One of the most important questions a home loan applicant can ask is, “How much will my monthly mortgage payment be?”
While this may seem to be a simple calculation of how much the loan is, divided by how many months the mortgage loan payments are required, the truth is that it’s more complex than that.
Mortgage loan applicants have a variety of online mortgage calculators to help them arrive at estimates, but what actually goes into the calculation of your monthly mortgage payment?
If it’s not a simple matter of taking the loan amount and dividing it by the number of months the loan term is set for, what DOES go into those calculations?
There are a variety of things. The basic calculation we mention is part of it, but add in hazard insurance, mortgage insurance premiums and other expenses (plus any add-ons to the loan the borrower might choose such as an Energy Efficient Mortgage or EEM) and you have a list of items that must be factored in.
HUD 4000.1 has a list of items that may be included in the total mortgage payment:
- Principal and interest;
- Real estate taxes;
- Hazard insurance;
- Flood insurance as applicable;
- Mortgage insurance;
- HOA or condominium association fees or expenses;
- Ground rent (where applicable);
- Any required special assessments;
- Payments for any acceptable secondary financing; and
- Any other escrow payments.
According to HUD 4000.1 in this section, “The Mortgagee may deduct the amount of the Mortgage Credit Certificate or Section 8 Homeownership Voucher if it is paid directly to the servicer”.
As you can see there are many things that can go into the mortgage payment calculation.
That’s one reason why it’s important to carefully review add-ons to the loan such as financing discount points (where applicable and permitted), EEM funds, etc.
It’s clear that a borrower can watch her/his mortgage payment go up; unless add-ons to the loan amount are carefully monitored you may find your payments higher than you prefer.
It’s not impossible to arrive at a realistic estimate for your monthly FHA mortgage loan or refinance loan payments.
Keeping a close eye on these expenses in the appropriate part of the planning stages of the loan can help you avoid surprises where the monthly payment is concerned.
Have a conversation with your lender if there is any part of this process you have concerns with. Remember that no two loan transactions are identical; if you’ve had a past experience with a home loan it’s not safe to assume that all aspects of the last transaction apply to your new one.
There may be new fees or charges to consider for your new loan.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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